Question

# Suppose that a firm in a competitive market faces the following revenues and costs: Quantity Total...

Suppose that a firm in a competitive market faces the following revenues and costs:

 Quantity Total Revenue Total Cost 0 \$0 \$5 1 \$8 \$9 2 \$16 \$14 3 \$24 \$20 4 \$32 \$27 5 \$40 \$35 6 \$48 \$44 7 \$56 \$54 8 \$64 \$65 9 \$72 \$72

If the firm’s marginal cost is \$11, it should

Question 10 options:

 Increase production to maximize profit Increase the price of the product to maximize profit Advertise to attract additional buyers to maximize profit Reduce production to increase profit

option 4

Reduce production to increase profit

MC of n the unit=(TC of n units -TC of p units )/(n-p)...............n>p

TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

profit=TR-TC
The firm produces at MR=MC or the closet lower MC

 Quantity Total Revenue Total Cost MR MC Profit 0 0 5 -5 1 8 9 8 4 -1 2 16 14 8 5 2 3 24 20 8 6 4 4 32 27 8 7 5 5 40 35 8 8 5 6 48 44 8 9 4 7 56 54 8 10 2 8 64 65 8 11 -1 9 72 72 8 7 0

the firm maximizes profit at MC=MR

and the MR=8 and the MC at the production level is 11 so the firm should decrease the output to produce at MR=MC and maximize profit